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May 21, 2021

High Tech Exemption Changes Threaten Investment Incentive


On the final day of the 2021 legislative session, the Georgia General Assembly approved Senate Bill 6, an omnibus tax measure that included many pro-business tax provisions – and a few that cause serious concerns. The problems stem from language added late in legislative negotiations, without any opportunity for public input, that amends and eventually repeals the state’s sales tax exemption for high-technology companies (“the high-tech exemption”). If left in place, this change will raise the costs of operating single-user tenant data centers in Georgia and adversely impact many of our telecom companies that utilize this incentive.

The high-tech exemption is available to certain companies that purchase or lease at least $15 million worth of computer equipment in a calendar year in Georgia. The exemption applies state-wide for companies that qualify on an entity basis--based on the entity’s NAICS code--or on a single facility basis for companies without a qualifying NAICS code but meet the threshold for a single-tenant user data center located in Georgia. These tax savings encourage large-scale spending that brings capital investment and high-quality jobs to the state and incentivizes many Georgia-based businesses to locate these facilities here. In an increasingly digital economy driven by data storage and cloud computing, other states, like Virginia, are aggressively competing to attract these facilities.

Put in place in the early 2000s, the tax exemption has aided recruitment of these valuable facilities. Coupled with Georgia’s affordable power rates and top-ranked business climate, the metro Atlanta region ranks as one of the top markets for data centers in the country. Atlanta is on target to supplant other markets as long as the state continues to compete against other states for these facilities aggressively. The high-tech exemption exemplifies the kind of policy needed to accomplish that.

SB 6 calls for the high-tech exemption to end on June 30, 2023. This raises numerous issues. First, the timing of this sunset doesn’t work -- it repeals the exemption halfway through the calendar year when the exemption is based on the level of qualifying spend over a full calendar year (for example, January 1, 2023-December 31, 2023). Second, the sunset only provides two years before the law would expire. Such a short window doesn’t give companies enough time to plan significant, multi-year capital investments. It is also worth noting that the legislature created an incentive to attract co-location data centers in 2018 that does not expire until December 31, 2028. With the changes made to the high-tech exemption this session, these two incentives are now grossly out of sync—with one expiring in two years and the other toward the end of this decade.

The conference committee further added language to SB 6 that appears to try to exclude wireline and wireless telecommunication system equipment from the exemption. This late addition has already impacted ongoing litigation between the Georgia Department of Revenue and T-Mobile. The Georgia Tax Tribunal ruled, before the inclusion of this language, that such equipment generally qualifies for the high-tech exemption. However, on May 20th, the Fulton County Superior Court reversed the Tax Tribunal’s decision, in part, based on the language of SB 6 added to the conference committee report. This change that impacted the ruling, if it withstands a likely appeal, will also undoubtedly make it more costly for companies expanding broadband coverage throughout the state.

Overall, SB 6 contains many pro-business provisions, including language proposed by the Metro Atlanta Chamber and our partners at the Georgia Chamber of Commerce that clarifies the reporting timeline and confidentiality provisions for businesses that take the high-tech exemption. But the provisions of SB 6 that add a sunset and exclude telecom equipment hurt our state’s pro-business environment and inhibit high-dollar investment by companies looking to maintain and locate the types of facilities discussed in this post to the peach state. The Metro Atlanta Chamber and our partners will pursue efforts to revisit these issues in 2022.

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